Are the better traders closer to 100% winning trades, or is that just the way it seems? In contrast, the closer the traders are to 0%; it would seem that they are worse. There is more to trading than winning the most possible trades, even though that seems peculiar. This article will hopefully help fill you in on why I would argue that a 95% win rate is infinitely worse than a 65% win rate.
First we'll take a look at traders with a low win rate. We will classify 0% to ~40% as low. If a trader fits into this range, then the closer they are to zero probably means the worse they are. Most traders in this lower range are losing traders. You will occasionally find a trader who attempts to catch very large moves with very tight stops. This type of trader may have an extremely low win % and still be a very successful trader.
Lets look at the next range, say from 40% - 70%. Most winning traders will fit into this category. These traders don't win by picking all winners and only the rare loser. Indeed, they may have more losers than winners. The secret to their winning ways is that they know how to manage their open trades. They avail themselves of rational stops that will more often than not be executed. This behavior will often result in a losing trade; however, it is a small, basically inconsequential loser. These losses are only a small percentage of their successful trades. These traders usually have the ability to cut their losses and let their winners run free. Not many traders have the discipline to actually exercise this simple concept. They go all or nothing and wind up with mostly nothing.
The last group are those with a very high win % (over 70%). It seems the closer to 100% these traders get, the more people want to trade their signals. Unfortunately the opposite is probably the correct play. These traders win an incredibly high amount of the time because they often take profit off of the table as soon as it appears. This strategy is fine if you also plan to cut losses in that manner. But traders with 95% win rates and above do not have this strategy in mind. Rather than accepting a small loss and moving on with their day, they will let a loser run indefinitely and even add to that position in many cases. This eventually wipes out months or more of winning trades all at once and in the end has no chance of success. One 500 pip loser wipes out 500 one pip winners. Keep in mind that this trader would have well over 99% winning trades and still be an over all loser.
The point of this article is not to say that no one outside of the predetermined range can possibly be a winning trader. Surely many people can and do win with a win % outside of my range. I just want to warn you that if someone has a 95% win rate you should stand aside and hope not to get hit by any debris when they eventually implode. - 22871
First we'll take a look at traders with a low win rate. We will classify 0% to ~40% as low. If a trader fits into this range, then the closer they are to zero probably means the worse they are. Most traders in this lower range are losing traders. You will occasionally find a trader who attempts to catch very large moves with very tight stops. This type of trader may have an extremely low win % and still be a very successful trader.
Lets look at the next range, say from 40% - 70%. Most winning traders will fit into this category. These traders don't win by picking all winners and only the rare loser. Indeed, they may have more losers than winners. The secret to their winning ways is that they know how to manage their open trades. They avail themselves of rational stops that will more often than not be executed. This behavior will often result in a losing trade; however, it is a small, basically inconsequential loser. These losses are only a small percentage of their successful trades. These traders usually have the ability to cut their losses and let their winners run free. Not many traders have the discipline to actually exercise this simple concept. They go all or nothing and wind up with mostly nothing.
The last group are those with a very high win % (over 70%). It seems the closer to 100% these traders get, the more people want to trade their signals. Unfortunately the opposite is probably the correct play. These traders win an incredibly high amount of the time because they often take profit off of the table as soon as it appears. This strategy is fine if you also plan to cut losses in that manner. But traders with 95% win rates and above do not have this strategy in mind. Rather than accepting a small loss and moving on with their day, they will let a loser run indefinitely and even add to that position in many cases. This eventually wipes out months or more of winning trades all at once and in the end has no chance of success. One 500 pip loser wipes out 500 one pip winners. Keep in mind that this trader would have well over 99% winning trades and still be an over all loser.
The point of this article is not to say that no one outside of the predetermined range can possibly be a winning trader. Surely many people can and do win with a win % outside of my range. I just want to warn you that if someone has a 95% win rate you should stand aside and hope not to get hit by any debris when they eventually implode. - 22871
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